By Rip Landes, Economic Research Service, USDA; and Ashok Gulati, IFPRI

Policy reforms outside agriculture in the early 1990’s accelerated growth in per capita incomes an food demand and improved the terms of trade for the agriculture. Agricultural policies and institutions, traditionally focused on achieving food grain self-sufficiency within a closed economy, however, have been slow to adapt to a new environment of diversifying demand, more open markets, and a greater role for the private sector.

Support price policy has remained unlinked from domestic and international marked realities, creating significant budgetary costs and marked distortion. Inability to reform price policy and contain input subsidies has led to a decline in public investment in agriculture at a time when investment in new infrastructure and institutions is needed. Implementation of targeted safety net programs has proven difficult due to weak administrative capacity and local resource constraints. Reforms at the border, when implemented, have typically exposed inefficiencies in the domestic market that limit competitiveness.

Consensus building for change in agricultural policy remains difficult in India. With the farm sector accounting for 25 percent of GDP and 60 percent of employment, there is a deep-rooted perception that the welfare of the poor is linked closely to the protection of agriculture. More research within economy-wide frameworks may be effective in evaluating impacts and provoking debate on fundamental reform. Also needed is research on the implications of market-oriented reforms for good price stability, and on impediments to private investment in agriculture.

The Indian experience with policy reform in agriculture is, so far, primarily one that highlights the difficulties in formulating and implementing reforms needed for the sector to adapt to its changing environment. Developments outside agriculture are creating pressure for change in traditional policies and institutions focused on food grain self-sufficiency.

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By Paul Diederen, Hans van Meijl, and Arjan Wolters, Agricultural Economics Research Institute (LEI)

This paper examines the factors that influence a farmer’s decision to adopt an innovation. The authors differentiate between innovations that are new to the farmer, but already well established in the sector, innovations that are early in their process of diffusion, and innovations that are new to the farm sector.

The authors statistically analyze data from 865 Dutch farms on adoption of innovations. Their results show that innovative activities are positively related to labor resources (which is highly correlated with farm size), market position (indicating whether a farm produces for a market that permits product differentiation), and a farmer’s access to information. Surprisingly, their results show that innovative activities are negatively related to solvency. This may indicate that farms with a high solvency rate are risk averse and not eager to innovate.

Furthermore, the authors find that adoption behavior shows some persistence over time: being an innovator in the past increases the probability of being an innovator in the present. Finally, the authors find that characteristics of the business environment matter. In particular, a high degree of market regulation seems to have a negative impact on adoption behavior.

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By Darcie Doan, Brian Paddock, and Jan Dyer, Agriculture and Agri-Food Canada

This paper provides an overview of grain transportation policy in Canada over the last 100 years, including the inception of the Crop Rate, the replacement of the Crop Rate with the Western Grain Transportation Act (WGTA), and finally, the repeal of the WGTA.

Particular emphasis is placed on the structural change to the western agricultural economy that occurred following repeal of the WGTA in 1995. When grain transportation subsidies were removed, industry responded quickly to market signals through a diversification of crop patterns, an increase in livestock production, and an increase in value-added processing.

Agriculture is a dynamic industry. The forces of globalization, industry rationalization, new technology, and changing consumer demand give rise to new challenges and opportunities for industry and government alike. Canada’s experience with transportation subsidies demonstrates that the right policy can unleash the potential of the private sector to create new opportunities in response to changing conditions. Grain transportation subsidies were outdated, expensive, and an impediment to economic development on the Prairies. When these subsidies were removed, industry players responded quickly to market signals through a diversification of crop patterns, an increase in livestock production, and investments in value-added processing.

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By Pinar Celikkol, Duquesne University; James W. Dunn and Spiro E. Stefanou, Pennsylvania State University

The impact of agricultural policies is of major concern when addressing issues of growth, innovation, and consolidation in the food-manufacturing sector. Growth is one of the forces fueling the globalization of food manufacturing activities. Market- and policy-driven forces present a myriad of opportunities to influence growth and reorientation of patterns at the nexus where food manufacturing links the food system. The productivity and international competitiveness of the food-manufacturing sector must be evaluated in the context of governmental incentives, international standards, and the emerging supply- and value-chains.

The authors discuss current food-sector market characteristics and plausible concerns for the future. They conclude with a discussion of future trends and patterns within the food-sector. Consolidation in the food manufacturing sector is not necessarily coincident with increases in market power at consumers’ expense. Oftentimes, consolidation is focused regionally. In the advent of growing, more integrated marketing channels, food industry giants tend to find themselves going head-to head for market share. Regional brands still hold significant appeal to consumers and examples abound of the inability of emerging national brands to gain a leading position in all regional markets. The future patterns and trends arising from consolidation will likely depend on specific product categories or the marketing channels embedded in a region.

In the longer run, the role of public policies is manifested by growth in the food manufacturing system and the larger food system. The impact of commodity policies directed at primary commodity producers and the agents in the food system closest to them eventually radiate through the chain in the form of innovations that may not be undertaken. The impact of policies directed at value-added products such as those related to food safety and quality assurance radiate forward to consumers and are predicated on traceability standards that by definition radiate backward through the food system.

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